FIRST ERLIN Equity Research RATING Germany / Advertising Primary exchange: Frankfurt, Xetra Q2/15 Results PRICE TARGET 2.80 loomberg: YOC GR Return Potential 29.6% ISIN: DE0005932735 Risk Rating High SALES GROWTH IN Q2 DISAPPOINTS; LOWERING FORECASTS Ellis Acklin, Tel. +49 (0)30-80 93 96 83 2 Y O UY Key Q2/15 figures were below our estimates. The company booked solid revenue growth for the D-A-C-H region, but this was offset by weaker than expected performance in Spain and the UK. The latter is the second largest market behind Germany for YOC, causing the shortfall to our forecasts. Management acted swiftly to get the ritish market back on track, but we do not expect a significant top-line increase until Q4/15 and have adjusted our forecasts accordingly. Nevertheless, we still expect YOC to realise its first Y/Y revenue growth (4.4%) since 2012. Our adjusted forecasts result in a new fair value and price target of 2.80 (previously: 4.00). Our recommendation remains uy. Q2/15 revenues decline Y/Y; EITDA improves slightly Q2 sales declined 11% Y/Y to 2.3m (Q2/14: 2.6m; Fe: 3.4m) owing mainly to poor developments with its Spanish and UK operations. Spain is growing, although slower than expected, whereas the approach to the UK market needs some adjustments to restart growth. Management hired a new Managing Director to overhaul the concept for the ritish market. Despite the revenue shortfall, product innovations and an increasing portion of programmatic activities helped boost the gross margin (as % of revenues) to 33.4% vs 32.4% in Q2/14. Personnel expenses were in line with last year at 1.0m (Q2/14: 1.0m), whereas other operating expenses were lower Y/Y at 0.6m vs 0.8m in Q2/14 having benefited from cost cutting measures. EITDA for the second quarter totalled -0.6m (Q2/14: -0.7m; Fe: -0.3m). On a half year basis EITDA improved slightly to -1.0m (H1/14: -1.1m) Adjusted for restructuring effects, EITDA in H1/15 improved 0.8m to - 1.0m (H1/14 adjusted: -1.8m). Negative operating cash flows digging into cash position At of the end of Q2, cash and cash equivalents totalled 0.7m compared to 1.2m at the end of 2014. We note the company will receive an 0.8m cash injection from an extraordinary profit stemming from the recently announced out-of-court settlement in Q3. Cash flow from operations in the first six months totalled -1.5m vs -1.6m in H1/14. Cash flow from investing (p.t.o.) COMPANY PROFILE YOC is a leading independent Mobile Advertising platform, which helps mobile app developers and digital publishers boost advertising revenues while also providing advertisers with attractive inventory and technology to maximize the effectiveness of their mobile media spend. MARKET DATA As of 01 Sep 2015 Closing Price 2.16 Shares outstanding 3.11m Market Capitalisation 6.72m 52-week Range 1.59 / 3.50 Avg. Volume (12 Months) 7,963 Multiples 2014A 2015E 2016E P/E n.a. n.a. n.a. EV/Sales 0.7 0.6 0.4 EV/EIT n.a. n.a. n.a. Div. Yield 0.0% 0.0% 0.0% STOCK OVERVIEW 3.4 3 2.6 2.2 1.8 1.4 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 General All Share 2400 2300 2200 2100 2000 1900 1800 1700 FINANCIAL HISTORY & PROJECTIONS 2012A 2013A 2014A 2015E 2016E 2017E Revenue ( m) 21.72 11.92 9.37 9.78 14.20 17.37 Y-o-y growth n.a. -45.1% -21.4% 4.4% 45.2% 22.3% EIT ( m) -10.10-7.21-1.58-1.41-1.19-0.21 EIT margin n.a. n.a. n.a. n.a. n.a. n.a. Net income ( m) -11.06-7.98-1.74-1.49-1.21-0.22 EPS (diluted) ( ) -5.54-2.92-0.61-0.44-0.36-0.06 DPS ( ) 0.00 0.00 0.00 0.00 0.00 0.00 FCF ( m) -4.67-0.40 0.74-1.64-0.60 0.25 Net gearing n.a. n.a. n.a. n.a. n.a. n.a. Liquid assets ( m) 0.25 0.53 1.20 0.67 0.92 0.86 RISKS Risk include but are not limited to: weak balance sheet, small size, and low barriers to entry in core activities. COMPANY DATA As of 30 Jun 2015 Liquid Assets 0.70m Current Assets 3.30m Intangible Assets 0.60m Total Assets 4.00m Current Liabilities 5.90m Shareholders Equity -2.20m SHAREHOLDERS Dirk Kraus 19.5% Deutsche Industrie Holding 9.9% Institutional holdings 12.5% Other 10.9% Free Float 47.2% Analyst: Ellis Acklin, Tel. +49 (0)30-80 93 96 83
amounted to -0.1m, while cash flow from financing was 1.1m, stemming from the capital increase and draw down of debt in Q2. In our view, the net cash outflow of 0.5m in H1/15 combined with a lower outlook could stretch the balance sheet next year if sales continue to be sluggish. Figure 1: Q2/15 results vs our forecasts in '000 Q2-15 Q2-15E Delta Q2-14 Delta H1-15 H1-14 Delta Revenues 2,327 3,401-31.6% 2,623-11.3% 4,382 4,448-1.5% EITDA -576-332 - -671 - -993-1,146 - Margin -24.8% -9.8% - -25.6% - -22.7% -25.8% - Net income -680-393 - -876 - -1,170-1,473 - Margin -29.2% -11.6% - -33.4% - -26.7% -33.1% - EPS (in ) -0.22-0.14 - -0.31 - -0.38-0.52 - *figures are adjusted to reflect continuing operations Source: First erlin Equity Research; Cutting forecasts to account for regional developments As discussed in our previous updates, YOC replaced its Spanish team as part of its restructuring last year. The staff scored a major win with the Shazam partnership and sales have been growing albeit not as briskly as anticipated. UK operations disappointed in H1/15 prompting YOC management to replace the Managing Director. The successor will implement a new concept to get the ritish market back on track. We likewise believe this will take time to ramp up and expect the first significant pick up in sales in Q4/15. We therefore expect Q3 2015 to remain flat Q/Q with an overall pick up in sales in the final quarter of 2015. For 2016, we look for sales to benefit strongly from the newly formed YOC Performance operations, which targets the acquisition of active users or its advertisers on a data-driven basis, i.e. from downloads of native apps to mobile transactions. Our lowered forecasts will weigh on the balance sheet, which had been stabilised with a capital increase in H1 2015. YOC will receive a liquidity injection in Q3 of 0.8m from the aforementioned out-of-court settlement, and the company has arranged a credit facility of 0.1m to draw down if needed. Nevertheless, cash will remain tight over the near term and we cannot rule out the possibility of another capital increase to fund growth until operating cash flows turn positive with a pick up in sales. Figure 2: Adjustments to our forecasts 2015E 2016E in '000 old new Delta old new Delta Revenues 12,781 9,782-23.5% 16,147 14,201-12.1% EITDA -1,600-1,239 - -604-1,038 - Margin -12.5% -12.7% - -3.7% -7.3% - Net income -1,841-1,538 - -824-1,258 - Margin -14.4% -15.7% - -5.1% -8.9% - EPS (in ) -0.60-0.50 - -0.26-0.40 - Source: First erlin Equity Research Underlying positives still intact despite disappointing growth over the near term Despite the recent obstacles in Spain and the UK, we believe the company will get the underperforming business regions back on track and that the company is well positioned with its Mobile Advertising and Programmatic business model. The gross margin has improved with the addition of Programmatic, while operating costs are significantly more tenable after the restructuring. Management now target high single digit top-line growth for the year. Our adjusted forecasts result in a DCF fair value and price target of 2.80 (previously 4.00). Coinciding with the recent slide in the share price, this corresponds to a uy rating. Page 2/7
DCF VALUATION Our DCF valuation produces a total fair value of 9.4m adjusted for the net cash position of 0.36m at the end of H1/15 plus 0.75m we have assumed YOC will need to raise in order to facilitate the growth of its operations. We believe the company will able to tap the capital market again by means of subscription rights with existing shareholders, and have modelled for a capital increase in 2016. ased on fully diluted (post-money) shares outstanding of 3.4m, our fair value corresponds to 2.80/share. All figures in EUR '000 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Net sales 0 9,782 14,201 17,371 20,604 24,238 28,813 33,929 39,969 NOPLAT 0-1,413-1,192-210 116 279 523 1,061 1,344 + depreciation & amortisation 0 225 202 218 215 239 250 260 269 Net operating cash flow 0-1,189-990 8 331 518 773 1,321 1,614 - total investments (CAPEX and WC) 0 15 352 110 111 448 236 286 377 Capital expenditures 0-215 -226-237 -249-261 -269-277 -286 Working capital 0 230 578 347 360 709 505 563 663 Free cash flows (FCF) 0-1,174-638 118 442 965 1,009 1,607 1,991 PV of FCF's 0-1,118-524 84 270 508 457 628 671 All figures in thousands PV of FCFs in explicit period 4,696 PV of FCFs in terminal period 3,754 Enterprise value (EV) 8,449 + Net cash / - net debt (H1/15) 888 + Investments / minority interests 0 Shareholder value 9,337 Shares outstanding (diluted) 3,363 Fair value per share in EUR 2.80 Terminal growth rate WACC 16.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Cost of equity 16.9% 10.0% 5.82 6.01 6.22 6.46 6.73 7.04 7.39 Pre-tax cost of debt 11.0% 12.0% 4.35 4.46 4.57 4.70 4.83 4.99 5.16 Tax rate 30.0% 14.0% 3.36 3.42 3.49 3.56 3.64 3.72 3.82 After-tax cost of debt 7.7% 16.0% 2.65 2.69 2.73 2.80 2.82 2.87 2.93 Share of equity capital 90.0% 18.0% 2.13 2.16 2.18 2.21 2.24 2.27 2.31 Share of debt capital 10.0% 20.0% 1.74 1.76 1.77 1.79 1.81 1.83 1.85 16.0% 22.0% 1.43 1.44 1.46 1.47 1.48 1.49 1.51 * please note our model runs though 2028 and we have shown only the abbreviated verson for formatting purposes WACC Page 3/7
INCOME STATEMENT All figures in EUR '000 2013A* 2014A 2015E 2016E 2017E 2018E Revenues 11,917 9,368 9,782 14,201 17,371 20,604 Own work capitalised 63 268 298 320 350 350 Other operating income 1,325 2,683 1,374 160 160 160 Total Ouput 13,305 12,319 11,454 14,681 17,881 21,114 Cost of goods sold -8,468-6,391-6,575-9,423-11,446-13,522 Gross profit 4,837 5,928 4,879 5,258 6,435 7,592 G&A -4,406-3,235-1,991-2,130-2,206-2,266 Personnel costs -6,657-3,963-4,075-4,118-4,221-4,945 Depreciation and amortisation -980-311 -226-202 -218-215 Operating income (EIT) -7,206-1,581-1,413-1,192-210 166 Net financial result -81-45 -12-18 -8 0 Pre-tax income (ET) -7,287-1,626-1,425-1,210-218 166 Income taxes -694-119 -61 0 0 0 Minority interests 0 0 0 0 0 0 Net income / loss (continued operations) -7,981-1,745-1,486-1,210-218 166 Net income / loss (discontinued operations) -2,502 5,037 0 0 0 0 Net income/ loss -10,483 3,293-1,486-1,210-218 166 Diluted EPS (in ) -2.92-0.61-0.44-0.36-0.06 0.05 EITDA¹ -6,226-1,270-1,187-990 8 381 Ratios Gross margin 32.8% 31.8% 32.8% 33.6% 34.1% 34.4% EIT margin on revenues n.a. n.a. n.a. n.a. n.a. 0.8% EITDA margin on revenues n.a. n.a. n.a. n.a. 0.0% 1.8% Net margin on revenues n.a. n.a. n.a. n.a. n.a. 0.8% Tax rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Expenses as % of revenues G&A 34.5% 34.5% 20.4% 15.0% 12.7% 11.0% Personnel costs 42.3% 42.3% 41.7% 29.0% 24.3% 24.0% Depreciation and amortisation 2.5% 2.5% 2.0% 1.4% 1.2% 1.0% Y-Y Growth Revenues -45.1% -21.4% 4.4% 45.2% 22.3% 18.6% Operating income n.m. n.m. n.m. n.m. n.m. n.m. Net income/ loss n.m. n.m. n.m. n.m. n.m. n.m. * adjusted to reflect continuing operations ¹ 2014 EITDA is - 2.3m excluding the 1.0m one-off restructuring effects Page 4/7
ALANCE SHEET All figures in EUR '000 2013A 2014A 2015E 2016E 2017E 2018E Assets Current assets, total 5,500 3,485 2,787 3,571 4,086 5,098 Cash and cash equivalents 531 1,204 666 691 637 1,070 Receivables 3,960 1,611 1,742 2,490 3,046 3,613 Other current assets 972 641 350 361 371 382 Tax assets 37 29 29 30 32 34 Assets for sale 0 0 0 0 0 0 Non-current assets, total 2,228 650 614 638 656 690 Property, plant & equipment 498 145 121 164 178 208 Goodwill & other intangibles 1,729 502 490 470 475 478 Other assets 1 4 4 4 4 4 Total assets 7,728 4,135 3,401 4,209 4,742 5,788 Shareholders' equity & debt Current liabilities, total 11,723 5,720 5,372 6,765 7,817 8,798 Short-term debt 525 0 0 0 0 0 Accounts payable 3,008 2,521 2,882 4,208 5,111 6,039 Current provisions 40 0 578 578 665 665 Other current liabilities 8,150 3,199 1,911 1,979 2,040 2,094 Long-term liabilities, total 684 65 365 465 165 65 Long-term debt 602 0 300 400 100 0 LT provisions 64 65 65 65 65 65 Other liabilities 18 0 0 0 0 0 Minority interests 0 0 0 0 0 0 Shareholders' equity -4,679-1,650-2,336-3,021-3,240-3,074 Total consolidated equity and debt 7,728 4,135 3,401 4,209 4,742 5,788 Ratios Current ratio 0.5x 0.6x 0.5x 0.5x 0.5x 0.6x Quick ratio 0.4x 0.5x 0.4x 0.5x 0.5x 0.5x Net working capital 952-910 -1,140-1,718-2,066-2,426 Net debt 596-1,204-366 -291-537 -1,070 Return on equity (ROE) n.m. n.m. n.m. n.m. n.m. n.m. Page 5/7
CASH FLOW STATEMENT All figures in EUR '000 2013A 2014A 2015E 2016E 2017E 2018E Net income from continued operations -7,981-1,745-1,486-1,210-218 166 Net income from discontinued operations -2,502 5,037 0 0 0 0 Depreciation and amortisation 4,138 356 226 202 218 215 Changes in working capital 454-39 -188 634 483 401 Others 1,075-1,342-51 0 0 0 Result from disposals 1-4,187 0 0 0 0 Operating cash flow -4,815-1,920-1,499-374 483 782 Investments in PP&E -178-44 -170-179 -187-197 Investments in intangibles -110 0-45 -47-50 -52 Disposal of business units 5,000 2,794 0 0 0 0 Disposal of assets 0 318 78 0 0 0 Others -295-410 -2 0 0 0 Cash flow from investing activities 4,417 2,658-139 -226-237 -249 Free cash flow -398 739-1,638-600 246 533 Debt financing, net -2,389-66 300 100-300 -100 Equity financing, net 3,059 0 800 525 0 0 Other changes in cash 0 0 0 0 0 0 Cash flow from financing activities 670-66 1,100 625-300 -100 Net cash flows 272 673-538 25-54 433 Cash, start of the year 259 531 1,204 666 691 637 Cash, end of the year 531 1,204 666 691 637 1,070 EITDA/share (in ) -2.18-0.44-0.38-0.29 0.00 0.11 Y-Y Growth Operating cash flow n.m. n.m. n.m. n.m. n.m. 61.8% Free cash flow n.m. n.m. n.m. n.m. n.m. 116.5% EITDA/share n.a. n.a. n.m. n.m. n.m. 4676.9% Page 6/7
FIRST ERLIN Equity Research FIRST ERLIN RECOMMENDATION & PRICE TARGET HISTORY Report No.: Initial Report Date of publication Previous day closing price Recommendation Price target 2 February 2015 2.05 uy 3.20 2...1 2 11 May 2015 3.06 uy 4.00 3 3 June 2015 2.79 uy 4.00 4 Today 2.16 uy 2.80 Ellis Acklin First erlin Equity Research GmbH Mohrenstraße 34 10117 erlin Tel. +49 (0)30-80 93 96 83 Fax +49 (0)30-80 93 96 87 info@firstberlin.com www.firstberlin.com FIRST ERLIN POLICY In an effort to assure the independence of First erlin research neither analysts nor the company itself trade or own securities in subject companies. In addition, analysts compensation is not directly linked to specific financial transactions, trading revenue or asset management fees. Analysts are compensated on a broad range of benchmarks. First erlin has received compensation from a third party where the subject company is a client. First erlin s opinion is based on its own findings. ANALYST CERTIFICATION I, Ellis Acklin, certify that the views expressed in this report accurately reflect my personal and professional views about the subject company; and I certify that my compensation is not directly linked to any specific financial transaction including trading revenue or asset management fees; neither is it directly or indirectly related to the specific recommendation or views contained in this research. In addition, I possess no shares in the subject company. INVESTMENT RATING SYSTEM First erlin s investment rating system is five tiered and includes an investment recommendation and a risk rating. Our recommendations, which are a function of our expectation of total return (forecast price appreciation and dividend yield) in the year specified, are as follows: STRONG UY: Expected return greater than 50% and a high level of confidence in management s financial guidance UY: Expected return greater than 25% ADD: Expected return between 0% and 25% REDUCE: Expected negative return between 0% and -15% SELL: Expected negative return greater than -15% Our risk ratings are Low, Medium, High and Speculative and are determined by ten factors: corporate governance, quality of earnings, management strength, balance sheet and financing risk, competitive position, standard of financial disclosure, regulatory and political uncertainty, company size, free float and other company specific risks. These risk factors are incorporated into our valuation models and are therefore reflected in our price targets. Our models are available upon request to First erlin clients. Up until 16 May 2008, First erlin s investment rating system was three tiered and was a function of our expectation of return (forecast price appreciation and dividend yield) over the specified year. Our investment ratings were as follows: UY: expected return greater than 15%; HOLD: expected return between 0% and 15%; and SELL: expected negative return. ADDITIONAL DISCLOSURES First erlin s research reports are for qualified institutional investors only. This report is not constructed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer would be illegal. We are not soliciting any action based upon this material. This material is for the general information of clients of First erlin. It does not take into account the particular investment objectives, financial situation or needs of individual clients. efore acting on any advice or recommendation in this material, a client should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only; such opinions are subject to change without notice. Copyright 2015 First erlin Equity Research GmbH. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without First erlin s prior written consent. The research is not for distribution in the USA or Canada. When quoting please cite First erlin as the source. Additional information is available upon request. Page 7/7